Asset-Liability Management Under the Safety-First Principle

M. C. Chiu () and D. Li ()
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M. C. Chiu: Hong Kong University of Science and Technology
D. Li: Chinese University of Hong Kong

Journal of Optimization Theory and Applications, 2009, vol. 143, issue 3, No 3, 455-478

Abstract: Abstract Under the safety-first principle (Roy in Econometrica 20:431–449, 1952), one investment goal in asset-liability (AL) management is to minimize an upper bound of the ruin probability which measures the likelihood of the final surplus being less than a given target level. We derive solutions to the safety-first AL management problem under both continuous-time and multiperiod-time settings via investigating the relationship between the safety-first AL management problem and the mean-variance AL management problem, and offer geometric interpretations. We classify investors under the safety-first principle as safety-first greedy and nongreedy investors and discuss corresponding optimal strategies for them.

Keywords: Portfolio selection; Asset-liability management; Safety-first; Efficient frontier (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10957-009-9576-6

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